GFT Technologies SE

XETRA:GFT

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, welcome, and thank you for joining today's conference call on the first half 2021 results of GFT Technology SE. [Operator Instructions]I would now like to turn the conference over to Jochen Ruetz, CFO. Please go ahead.

[Jochen Ruetz]

Thank you very much, and good morning, everybody on this call. Welcome to the financial results of the first half of 2021 of the GFT Group. I hope you all have the presentation available. We're sharing it in the webcast. It's available in our Investor Relations section on our website. And I will now zip through.I know there's a lot going on today anyway in summertime. So let's be efficient. Slide #2, which sums it all up, GFT rising fast on digitization trends. This is what we're seeing right now. We have already updated our guidance on 20 of July. You probably have seen it. So the guidance for the full year was out already for 2, 3 weeks. Now we come with the actuals of the first half. And we do see that catch-up effects on top of already heavy digitization trends have boosted our revenue, we're up 18% versus the first half of last year. While comparing to the first half of 2020 is a mixed bag. First quarter was still without COVID, and the second quarter was already COVID impacted. So comparing to that time period is a bit weird.Order backlog indicates a strong second half. This is why we were able to increase our guidance. Our utilization is significantly above the prior year. We will see that later. EBT even has quadrupled. Operating cash flow or cash position overall on a high level. And we have seen strong employee growth to accompany our revenue growth.So let's go to Slide #3 and look at the table. As you can see, the revenue growth of 18% led to a revenue of EUR 261.6 million. The order backlog is above prior year, 22% to EUR 117 million, and we have a strong increase in EBITDA of 56%, nearly EUR 29 million, sorry, EBITDA adjusted I'm looking at, take into account, and we show it on the right side, in the smaller bullet points that the previous year included a lot of exceptional items like the restructuring costs, which are now far lower and the underutilization, which is now not present anymore.On the FX side, we had a bit more problems and negative FX this year compared to the first half of last year. Looking at all other earnings numbers were up by more than 100%, EBT quadrupled, margin EBT wise at 6.4%, of course, significantly higher than last year. Tax ratio, I'll come back to that, is 27%.Let's move to Slide #4 and look at the diversification inside the GFT Group. Let's look at the left block first. So our broad client diversification is ongoing. The client group with more than EUR 50 million is only 1 client, right? Deutsche Bank account inside GFT, and that has heavily reduced from 22% to 17% of our overall revenue.Inside DB only declined by 8%, but as everything else was growing quite fast, the decrease in the share reduced to 17%. And the group of clients with more than EUR 10 million is heavily increasing. Here, we saw the pickup effects. These are big clients, and they have big pickup effects of investments not done in the year 2020. And therefore, the share rose to 36%. At the same time, the next block in the middle, declines between EUR 5 million and EUR 10 million is stable at 15%, which means it was growing by roughly 15, 16, 17 percentage points, but the share is 50%, unchanged. And then the next smaller group of clients between EUR 1 million and 5 million reduced to 22%. So we do see that the strong pickup in demand of the clients above EUR 10 million. What's hurting the smaller ones, because even this client group that now stands for 22% of our revenue was growing by 4%, but it looks like a reduction as a share of overall revenue. And then the pipeline of clients, very small clients, is stable at 10%.Now let's look at the right side. All sectors have seen nominal growth in the first half year. The banking sector by 13%, but the share of the overall revenue was decreasing to 73% because all other industries were growing faster. The insurance part was growing by 45%. It now stands for 17% of GFT overall. And industry and others was growing by 23%, which, in a rounded view, right, looks like it is still at 10% of overall GFT revenues.Let's move forward, Slide #5 and look at the revenue and EBITDA numbers by quarter. And let's focus on the comparison of Q2 versus Q1 first. So we have seen quarter-over-quarter growth of 11%. That is faster than the quarter before, when we compare Q1 to Q4, there the growth was only 5%. So we have seen a pickup in the second quarter. Earnings improvement also follows higher revenue contribution on the right side visible that we have an ongoing positive trend. When we compare to the second quarter of 2020, so the COVID quarter, growth is 27%, and of course, EBITDA is heavily improving because we had a lot of one-offs in the second quarter of 2020, therefore, probably not -- doesn't make much sense to really compare to that quarter. And so when we look at the first half year numbers on the slides to come, it's probably more helpful.Therefore, let's move forward to Slide #6 and start with the revenue by segment breakdown. Obviously, Americas and U.K. had an unbroken growth trend. We had some currency headwinds of minus 6%, but organic growth stood at 38%. And well, we kind of listed all countries in that business segment as growth countries. Brazil, U.S., Hong Kong, U.K. and Canada, and we will see later the detailed numbers coming from those markets. Continental Europe, good development in Italy and Switzerland. And it is overcompensating a decrease with top-2 clients, Deutsche Bank in Spain. And therefore, the [indiscernible] is plus of 6% organic growth in Continental Europe.Now let's take, as usual, one step deeper and divide it into the top-2 clients and the other clients. And when we look at the total group, we do see that the client concentration has reduced to 17% of the top-2 clients. But as I always say, Barclays is no longer really relevant. So this is mainly Deutsche Bank impact. But it's only a reduction of 8% in the first half year. So this is a slowdown versus the previous year. So we saw Deutsche Bank decline usually by 20%. So we do see a stabilization in the Deutsche Bank account. The decrease comes from both markets, U.K., Americas and Spain, especially on the Continental European side.When we look at all other clients, we see that they have grown by 26% in the first half versus previous year, of which most of the growth came in the Americas, U.K. and APAC. So a very strong development. And when we look at our full year guidance, we will see that Deutsche Bank will probably do bring in the same revenue again in the second half year, so another EUR 45.5 million, leading to EUR 91 million. So for the full year, we expect the top-2 clients to only decline by 5%. And again, this compares to more than 20% reduction over the last 4 years. Clearly, a signal that Deutsche Bank is stabilizing. All other clients will grow by 31% organically in 2021.Moving forward, Slide #8, we're now looking at the same picture, segments, but this time, earnings, and I'm focusing on EBITDA adjusted. In Americas, U.K. and APAC, we saw that the revenue increase led to higher earnings contribution and utilization. And so here, a good improvement, while in Continental Europe, we see a strong rebound. People are very utilized this year, and we no longer have those restructuring effects, and they are now paying off what we did last year. Therefore, hard to compare Continental Europe because most of the restructuring in 2020 happened in the first half in Continental Europe.Let's add the other segment. The other segment has higher non-allocated overhead costs, mainly IT costs, we are keeping in the holding and not charging, especially to Brazil because of very high tax burdens if we do that. And second, a higher variable share and bonus-based compensation, therefore, higher costs on the others segment. Overall, when we exclude all exceptional positive and negative effects, the margin has not changed much year-over-year if you exclude all nonoperational exceptional effects. And as we always said, 2021 is about growth. It's not about margin. Now that we do see a pickup in nominal earnings, is mainly because of the strong growth. On the margin side, we're seeing high onboarding costs for the people we're hiring, recruiting costs. And for sure, we will see later. We have more freelances on board than in previous years, and they are not as cost efficient as our own employees. Therefore, this strong growth is not easily giving us a higher margin, but it is giving us more EBITDA anyway.Let's move on Slide #9 and look at the revenue by markets. As promised, there are only 2 countries in negative, which is Spain. And this is only due to the Deutsche Bank reductions in that market. And it's Mexico. In Mexico, we have some local sales challenges going for local clients. All other markets are increasing, with Canada and Brazil standing out with tremendous growth rates. We also see that Switzerland has come back to growth, and Hong Kong and other markets are also growing steeply.Let's move forward, Slide #10, 30 biggest clients in the first half year. Well, you know all the names, not much change quarter-over-quarter. And the ones with the box around them were not in the list in the first half of 2020. So when we look at those, it's the Credit Agricole. But in Italy, we do see Custodigit on the left side, a Swiss client. We see HarbourVest, a U.S. client. And then we see the London Stock Exchange, well, of course, a U.K. client. So all mixed bag for new clients from different markets. In insurance, we see Beneva, which is a new name, but it is just a renaming after a merger. We used to show La Capitale, a big Canadian insurance company. Here it's now called Beneva. And WSIB is also new to the list compared to last year. And Google is back on the list. It wasn't in the top 30 in the year 2020. But now again, we're working for Google direct or through Google more than in the year before.Let's move forward, Slide #11, profit and loss statement. But as usual, not much to talk about. Let me look at cost of purchase services. I was indicating we're using more freelancers and external providers than in the years before, a steep growth of 52% of cost of purchase services indicate this. When we then combined, this is the fourth bullet point on the right, our personnel expenses and all purchased services exclude restructuring, we have an unchanged percentage of 82% of revenue.We would have hoped this to increase more, but the strong pickup of purchased services was preventing that because they are somewhat more expensive than if you -- we would have fully grown with own personnel expenses. Maybe also mentioned the other operating expenses, they are down 14%. One effect is FX, as less FX on both sides on operating income and operating expenses, and there's less travel. Roughly EUR 3 million less travel, of which EUR 2 million would have been invoiced to clients, so a positive impact on the cost side of roughly EUR 1 million. But here, it looks like EUR 3 million reduction. And then last but not least, income taxes stand at 27%, a far better profit loss distribution than last year. For the full year, we expect 25% here.Moving forward, cash flow on Slide #12. While our financing structure is solid as before, I think always the most interesting numbers on the very right in the graph, the net cash position at the end of June '21, minus EUR 16.3 million. So we're nearly down to 0, not yet. It's a 0.3x EBITDA. So it's a very low debt that we carry, and therefore, M&A would be possible if we find targets. Second point I would like to mention is operating cash flow, unchanged, strong, EUR 26.7 million. This time, fully fueled by the good profitability. A year ago, the cash flow was quite similar, but there it was fueled by improved working capital. We did a lot of working capital management a year ago when the COVID crisis started, and our clients behaved very nicely. This has not changed, but it was not possible to improve the working capital further. So it's kind of the same cash flow but different reasons. Last year, working capital effects, this year, it's the profitability. When we look at cash flow from financing, well, we simply pay back some loans because we want to reduce interest expenses. And last but not least, cash flow from investing activities. Now there's no M&A inside this year. So it's purely our own investments to retain our business. So as before, pretty low CapEx business. This is 1.2% of revenue going into investing activities.All right. Moving to Slide 13, another short one, balance sheet, not really much to mention here. On the left side, the second bullet point indicates a decrease in noncurrent assets which is mainly office lease. This IFRS 16, we often refer to, as we were able to reduce or terminate some of our rent contracts as our people are still heavily working from home, and we see this continuing. We have a positive effect here, and we were able to reduce those assets. What else? On the right side, let me mention equity ratio is up to 34%, while mainly because of the good profitability.Moving to Slide 14, employees. Three information. So let's start with the FTE number on the left. We saw a continuous growth trend on the employee side to 6,800 and a bit, mainly in Brazil, but we also see good growth in Poland and in Canada. So we are able to onboard people. Our utilization in the middle is very high, 91%, significantly above Q2 of last year. And as I said, while we carry the 91%, we are onboarding tremendous amounts of people and onboard people -- usually, they are not billable on day 1, right? There is a bit of friction for training, for being ready to go and being staffed on projects. And despite that fact, we are at 91%.And last but not least, attrition on the right side is picking up. I think I said it last time, I will repeat it, 14% is our trailing 12 months. We believe it will be probably closer to 16% for the full year. So attrition is really back, price inflation on salaries too. So our main challenge is managing the inflation and pushing it to our clients. We have another bullet point on the bottom, and we are naming the number of contractors. It is more than 1,000 at the moment. It was 620 last year. So you do see that -- on top of the FTEs that you see in the top left graph, we have a significant amount of freelancers on board to deliver the revenue we're showing.Moving forward, last slide, Slide #15, the outlook for 2021. These are already the new numbers. So on the revenue side, we now predict EUR 550 million. Our last guidance was EUR 520 million. We predict an EBITDA adjusted of EUR 62 million. Last guidance before the upgrade was EUR 56 million. And let's focus on EBT. EBT is now EUR 36 million. Last guidance was EUR 30 million. On the revenue side, we do see that the accelerated growth for COVID-19 and the catch-up effects goes on and the digitization trends are also intact. On the sector side, we will see that the client diversification continues. The share of Deutsche Bank will reduce. The banking share will probably continue to reduce, while insurance and other industries grow. The revenue growth is heavily related to our fast-growing technologies, and let me name cloud just as one here because it really stands out. We could produce even more revenues if we would have more experienced, trained and certified cloud experts. Problem is you can't hire these people in the market. They really do not exist in big amounts. So you have to hire people and train them. So this is really a bottom-up effort. On the earnings side, we do see a disproportionate increase triggered by the growth on the revenue side. Therefore, of course, because of -- mainly because of the exceptional items in the last year, the margin is heavily improving. If you take out the exceptional items, the margin is not taking a big step forward, just a smaller one. We'll focus again on revenue growth in the second half and continue spending on sales activities, technology expertise and, as I said, recruiting people to deliver to the market.For the full year, we are putting the pedal to the metal, to be honest, in terms of hiring. We -- it's really hard to do more for any services organization to go above 20% or 25% is kind of limiting because you suddenly start to promote as managers, not only Tier 1 and Tier 2, but Tier 3 people, and you have to manage your quality at the same time. And therefore, the guidance now given to the market, it's pretty much what we see for the year and what we can do for the year. We will talk about 2022 probably more in November because it will really pick up visibility after the summer period. But from today's perspective, all trends seem intact. Maybe the catch-up after COVID will be less, of course, but the digitization trend is ongoing. And therefore, we are, from today's perspective, optimistic for the year '22. But again, let's wait for the summer period. And after that, the talks of our sales teams with the clients, and we will have more visibility on that.That's it from my presentation and now ready to take your questions.

[Operator]

[Operator Instructions] The first question is from the line of Knud Hinkel from Pareto Securities.

[Knud Hinkel, Analyst]

I got five actually covering a number of topics. So maybe we do them one by one just in order, not to jump around too much. First of all, on the business with Deutsche, which was pretty strong in Q2 compared to prior periods. So just to confirm, is that already the effect you expected from the collaboration between Deutsche Bank and Google? Or is it something else that is there bringing up the revenues?

[Jochen Ruetz]

All right. Let's do it your way. Yes and no. First of all, yes, collaboration with Google is helping us. We're seeing slowdown in reduction in U.K., although there was still a slowdown in the first half. Germany was even stable or slightly growing. And Spain. Spain, we expect it to be lower, and it came in higher than expected. The Spanish Deutsche Bank account, which is quite big in GFT, will be going to India over time. And now it looks like it will take longer for Deutsche to do that. But in '22, it will more or less happen. And therefore, we are seeing a stronger Deutsche Bank Continental European business than we initially expected. It will weaken a bit in the second half, and we will see another drop there in the year '22 of EUR 10 million, EUR 15 million. But all other Deutsche Bank clients seem to stabilize as of now.

[Knud Hinkel, Analyst]

So 10%, 15% for '22 is just Spain? Or is it for the entire account?

[Jochen Ruetz]

EUR 10 million to EUR 15 million only for Spain, the other clients in Deutsche, we see stable for the year '22.

[Knud Hinkel, Analyst]

All right. Got it. Good. Then next question, the chip crisis. I know that you're not the big reseller of hardware. That's clear. But I can imagine that some of your clients have slowed down by the lack of chips and hardware at the end of the day. Do you see this effect or that doesn't matter at all for you?

[Jochen Ruetz]

To be honest, while we have 10% industrial clients, but overall, it doesn't matter at all for us. Well, we suffer a bit by ourselves, right? When you hire and onboard people, getting the laptops is also a drag these days. But to be honest, we manage, right? So we do manage, it is picking up laptops left, right, wherever you get them, but we're able -- every new joiner gets a laptop, right? Nobody starts with an empty desk. And that's the main challenge, right, which is the news, we don't have the challenges from the client side.

[Knud Hinkel, Analyst]

All right. And then a couple of housekeeping items. I remember you guiding for restructuring expenses as high as EUR 3.5 million for the full year. Now your -- the run rate is a little bit below after Q2. Is it still a valid estimate? Or do you see less than EUR 3.5 million?

[Jochen Ruetz]

Yes, that was a restructured you said, right? Restructured cost?

[Knud Hinkel, Analyst]

Yes.

[Jochen Ruetz]

As stated on the Slide #3, I think it's EUR 1.1 million so far. And to be honest, it will -- and now we were down to normal restructuring. So the daily hygiene, same hygiene that you use, that just happens in the company. So I wouldn't be surprised if it would be below EUR 2 million for the full year. That's the number we expect right now. So no longer EUR 3.5 million.

[Knud Hinkel, Analyst]

All right. Very good. And underutilization, I guess, seeing the graph that you presented is at EUR 0, at EUR 0 for the full year?

[Jochen Ruetz]

Exactly. It's EUR 0. As I mentioned, in a steady state with, let's say, a low 1 percentage digit growth, utilization would look higher because we wouldn't be onboarding so many new people who are not fully utilized. It would probably be 1 percentage point higher. But in the current growth phase, it's 91%, and we're happy with that.

[Knud Hinkel, Analyst]

Okay. And then last question, a very, yes, good one for the future, I think. The -- you're already at almost EUR 0 net debt after the first half of the year. And given that the outlook is very, very, very nice for the second half and for the next couple of years, I think, I expect cash to pile up over time. So you already mentioned that you would go for acquisitions, if there are opportunities. Maybe you can sort of a little bit the priorities you have with the cash in general. So is it -- do you have higher priorities for higher dividends or for acquisitions? So a little bit of guidance would be helpful here.

[Jochen Ruetz]

Yes. On dividend, we don't have -- we have no plans for changing the strategy, which is pay out 20% to 40% of group net earnings. We would like to be in the middle, 30% would like to be the target number, which means there's still a lot of cash left. And yes, we would want to use it for continuous M&A as we have done before. Again, we would focus on the midsized targets, not the big, big, big targets where you have a big investment at once, rather do 2 or 3 over a period of a year or 18 months, and integrate them in different regions. We want to strengthen our insurance business. We want to strengthen especially our industry business and anything related to assets. But we are also ready to strengthen our banking arm in markets where we are not strong yet, or where do see technology expertise missing on our side and a target having it. So rather look at mid, small mid sized deals, meaning revenues from EUR 10 million to EUR 40 million, right? And then price targets would also be in that region, maybe EUR 50 million at the max. So we're not overspending rather going for different diversified M&A strategy. We have targets, we're looking at, but currently, nothing is really hot.

[Knud Hinkel, Analyst]

Some of your competitors complain a little bit about prices that have risen recently and private equity was set to be back, but that doesn't hinder you from executing on your acquisition strategy?

[Jochen Ruetz]

No, it doesn't hinder us, but we do agree that we have seen some of the bidding processes out there going higher than we are ready to bid. And therefore, a year compared to years before the COVID crises, it looks like the multiples are up somewhat. But we're looking for the ones that still makes sense to us.

[Operator]

The next question is from the line of Sven Sauer from Kepler Cheuvreux.

[Sven Sauer, Equity Research Analyst]

A few questions regarding 4 different topics. The first is regarding the working capital development for the remaining year. I remember there were previously some issues there. How do you see this for the remaining year? The second -- or maybe we can go question by question, yes, that would be probably better.

[Jochen Ruetz]

Yes. Well, we don't see an issue for the working capital, to be honest. We would see it going straightforward. We have a certain seasonality in our working capital. It's reducing, but it is still there. It's linked to how banks pay and a lot of payments come at the end of the year. So usually, we have our highest cash in, in January, and then all the way into February. And therefore, we do see as the previous questions already indicated a net debt closing in on EUR 0 at the end of the year, profitability and working capital should help that. So no, we don't see any working capital issues right now. Well, we do have growth, right, which means there is a bit more working capital needed at the moment compared to a year ago, but no issues. We still have days out that are in line with where we want to be.

[Sven Sauer, Equity Research Analyst]

Okay. Great. The next question is regarding Brazil. Why is there so much growth there in employees? And what kind of projects are these in Brazil?

[Jochen Ruetz]

Brazil is pretty much reflecting what GFT does overall. The projects are all over the place. It is a growing market right now, although from a distance, we sometimes don't really believe it, right? So it's a growing market, especially on the banking side. They have been investing in digitization throughout the COVID pandemic, despite having very bad COVID numbers in Brazil, but especially the banks have not taken their foot off the pedal, and they were on full gas and they were spending. And that's why we're growing, right? We are a relevant player there. We are a trusted player. Everybody knows we are listed in Europe. So there's no wrongdoing possible from a GFT Brazil, which in Brazil, sometimes is not always the case in independent companies. And we are hiring the people mostly for the Brazilian market. We want to extend again what we deliver to the U.S. It has come -- now become a bit small inside our Brazilian portfolio, but growth in Brazil is just strong. And it comes from banks all over. And in Brazil, we're mainly working for the banks, a bit insurance, a big industry, but mainly for banks. And it is everything, right? It is from digitalization of core banking processes, reworking the core banking of a major bank or cloudification. So it's kind of the sweet spot of everything we are doing. And we have a big sales force practice in Brazil on top. So all those new technologies are picking up in that market as well.

[Sven Sauer, Equity Research Analyst]

Okay. The next question is regarding also what you just mentioned, the new technologies. I was wondering if you could share what the percentage was of these new technologies of the overall business in H1. And also, how much of the external contractors and freelancers and how much of the own employees percentage-wise are used for these new technology projects?

[Jochen Ruetz]

Yes. Well, we have guided for the year, and we're only giving the net tech numbers on a yearly basis. 50% will be in new technologies. And I believe we're well on track. Maybe it's a bit higher right now, right? So therefore, it is driving the growth, especially as sales is one of the driving topics. Data is one of the driving topics. And freelancers, own employee is pretty much the same. As I said, you cannot hire people with cloud expertise and 3 years' experience and being certified. So you don't even -- and you also don't find them as freelancers. You have to breed them by yourself. So when we take on board freelancers, it's the same. It is like employees when we do that. Sometimes it is for certain expertise, but for cloud, this is not the case.

[Sven Sauer, Equity Research Analyst]

Okay. And my last question is regarding also, of course, regarding the -- what you mentioned with the freelancers. I think last quarter or 2 quarters ago, you mentioned that the target -- you have a target of 79% regarding the percentage of staff costs and purchase services to sales. Do you -- are you still holding on to this target now that you are seeing a higher share of -- or freelancers who are, of course, then a bit more pricey?

[Jochen Ruetz]

Yes, I think it wasn't really the target, but it was what we had in the past. So of course, as usual, we would like to get back to good quotas you had in the past. But I believe currently in our current stage and setup and diversification in revenues across the globe, which has heavily changed to when we had 79%. (We had 60% top-2 clients revenue back then, and not much business in Brazil or in Poland). And therefore, we are probably sticking above the 80%. It will be hard to go below. But as I also said, we have a higher share of freelancers. We have a lot of new hires. Getting it down to 80% is feasible. But again, it would then probably be linked to a slower growth rate on the top line. So there's no free lunch, right? And there's always a price to pay. We can improve this quota, but then growth will probably be slower or the other way around. The quota is not that ideal, not that close to the 79%, but we're growing by 20%. And currently, we're taking the revenue side when we can pick. So we go for growth, and this will continue next year. So it will not improve very fast.

[Operator]

The next question is from the line of Lukas Spang from Tigris Capital GmbH.

[Lukas Spang]

My first question is concerning the order backlog. You report this number so for the second time. So we don't have that much experience with it. But if I compare Q2 with Q1 and also do this for the last year, I'm wondering if there is maybe some seasonality in order backlog. Is this the case? Or is there anything else for the reduced backlog in Q2 versus Q1?

[Jochen Ruetz]

Well spotted. Yes, there is seasonality. And as we are not reporting it for a long time, you're right, it is not easy to refer to that seasonality. The main reason is especially in banks, we get a lot of contracts on a yearly basis. So it is like application management for the full year for a certain application is handed out in January for 12 months. In other words, the order book reduces somewhat every quarter. And this is the effect we're seeing, the seasonality effect that for the first quarter of next year, the order book is not yet as strong because they are usually -- we started these projects only in the fourth quarter for then the full year '22. And we will see this seasonality go on when we report Q3. I would assume Q3 will be below Q2, right? We will see an ongoing seasonality there, and it will then pick up again in the early '22 reporting. And therefore, you're right, let's wait for the seasonality, and then we can more easily refer to that. We started the KPI knowing we don't have the seasonality. And so I can't prove what I'm saying right now, but trust me, we will come back to this next quarter.

[Lukas Spang]

And then in your presentation, you talked about the high onboarding costs. So do you have a feeling or can you quantify this for the first half of the year? And what do you expect for the full year on this topic?

[Jochen Ruetz]

Yes, we don't really quantify it. But when we were referring to the 82% overall cost versus revenue, it for sure cost was 0.5 percentage point there, the onboarding. And this includes more people in recruiting than before, more payments to agencies than before, that would be in other operating expenses. So 0.5 percentage point. But again, we're not really fully tracking that number. It is not something I can just take out of the report at GFT.

[Lukas Spang]

And this is only because you're hiring that much? Or do you see this also in a general trend?

[Jochen Ruetz]

I know it's mainly because of the speed we're hiring at, right? We're growing by how much is it? More than 20% for the full year. So we will be growing our people number by more than 20%, and that is linked to that number, right? If we would only be 8%, 9%, 10% growth, we would have a normalized cost for onboarding. But at the same time, we would have an overall better efficiency and utilization in the team because less people would be brand new.

[Lukas Spang]

Okay. And then last question on the restructuring topic. So if I got you right, you said EUR 1.1 million restructuring costs so far?

[Jochen Ruetz]

Correct.

[Lukas Spang]

And not as much as you expected at the beginning of the year, but do you expect some further restructuring costs in the second half of the year?

[Jochen Ruetz]

Yes. As a company of our size with 6,800 people, you always have restructuring costs, right? Usually, it used to be around EUR 1 million. Now we have outgrown that number. It's somewhere between EUR 1.5 million and EUR 2 million as a hygiene cost factor, which I would usually not even mention in this call, right? It's just something we have to endure. And we believe this is pretty much where we will end the year, between EUR 1.5 million and EUR 2 million. So it's not exceptional anymore. It is a normal rotating some people out of the organization cost that happens on a yearly basis.

[Operator]

The next question is from the line of Andreas Wolf from Warburg Research.

[Andreas Wolf, Research Analyst]

Congratulations on the quarter. Two questions from me. The first one is one relating to the topic we have just touched upon. So as you are hiring faster, do you basically see the cost per employee going up? And can you pass cost per employee on to your clients? So what's the customer behavior here? And then you've mentioned that Deutsche is obviously moving parts of its IT from Spain to India. I think that is the behavior that you've observed among other clients as well, at least in the U.K. in the past from Rule for instance. So what does this imply for, let's say, building the offshore -- an offshore presence for GFT somewhere?

[Jochen Ruetz]

Let me start with the second question first. Well, they are transferring it to their own IT department in India. So it wouldn't even help if we would be present in India to support them from there. They're doing it into their own hub. And it's been planned for more than a year now. Again, due to COVID, it's probably been a bit slower than they had planned. But this is a very, very special decision. Deutsche wants to move part of the business, supporting the Spanish Deutsche Bank organization to India. I think we have seen this happen in all other markets, and it is quite mature. In Spain, Deutsche Bank is just doing it now, right? So it will happen once and then it's done. But it is not a pattern we're seeing across the board. It's a very Deutsche-specific thing as they want to push it to their own Indian IT hub.On the hiring side, well, yes, you're right. When you hire fast and the overall market is quite hot, usually, you hire people on a bit higher cost level. However, when you hire people, you might hire lower levels than you initially planned for. And therefore, it is kind of balancing out. But yes, there is inflation in payroll these days? Absolutely. We see that. We have to manage it. We have to manage the client side. There's always a time gap between you have a pickup on the cost side and your salaries until you can move it to the clients. Usually, you need a new negotiation round. When the prices are negotiated for a year, for example, we will only see it next year. If it's new projects, you can then do it with the projects. But for the running business, it's not easy to discuss price increases. Although this is also happening these days because clients have the same issue, right? And the IT people are not only more expensive for GFT, it happens to the clients just as well. And therefore, they know there is no escape over time. But there is a time lag which we have to manage.

[Andreas Wolf, Research Analyst]

Great. One quick follow-up, if I may. A few days ago, there was a regulatory body saying that they want to push the banks or to encourage banks to further move to the cloud. Do you see concrete initiatives here that might support a business in that field going forward?

[Jochen Ruetz]

Yes, we also -- I saw that, too, right? And I thought, well, taking into account that 2 years ago nobody wanted the banks to go to the cloud in Europe for data protection reasons, and now we're pushing for it as the regulatory bodies, at least that has changed. Well, of course, within a week, nothing really happens. But we do see German banks starting or implementing their cloud strategy, most prominent for us is Deutsche Bank, going with Google where we are doing business. We're doing a lot of lift and shift work for them already or planning to do. We see Commerzbank has a plan, but I don't know if they are spending yet. And we see the same happening all over Europe. And therefore, it will be -- it's a trend which has started in the Anglo-Saxon markets 2, 3 years ago. We have gotten our experience, right? We've done a lot of project and references. And we always said we're ready for it when Europe joins. And now Europe joins. And it's -- to be honest, it's all about people. right? It's all about the number of people you have to serve those projects. The demand is really high, and it's not banks alone, everybody goes to the cloud. It's insurance companies, it's industrial clients. Everybody has a cloud strategy of some sort. And therefore, fighting for people is currently what is really happening and then you allocate to the projects.

[Operator]

We have a follow-up question from the line of Knud Hinkel from Pareto Securities.

[Knud Hinkel, Analyst]

Yes. Just one follow-up on the new clients. You had a slide where you said, okay, Google as a new customer or is back as customer in industrial. Could you explain a little bit about the nature of the project? Does it have anything to do with Deutsche Bank? I guess, no, because you put it into the client bucket -- to the industry bucket. So maybe you can shed a light on that?

[Jochen Ruetz]

Yes. I think most of the growth came from industrial clients, private equity clients working on cloudification in the U.S. where we have a relevant Google practice, and this is one of the growth drivers. Therefore, that was something that stood out. Yes, we're working for Google -- with Google on Deutsche Bank, but this is not the driving force. The driving force is different, mainly smaller initiatives we're doing like car builders in the U.S. and stuff like that. So it's industrial clients in the U.S. who are driving this growth.

[Operator]

There are no more questions at this time. I hand back to Jochen Ruetz for closing comments. Please go ahead.

[Jochen Ruetz]

All right. Everybody, thank you very much for joining today in the middle of summer, and we really have summer in Germany by now. We talk again in November after the Q3 numbers. If there are questions in between, feel free to contact us. Investor Relations, myself, ready to answer your questions. And I wish you well, who was not on holiday, I wish you a great holiday, everybody else, well, it won't be that you see in the office. That's good news, too. And hear you soon. Bye-bye, everybody.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you and for joining, and have a pleasant day. Goodbye.